Insolvency Bulletin: January 2017

This is the first XXIV Old Buildings Insolvency Bulletin of 2017, covering significant decisions handed down at the end of 2016 and in the first month of the New Year.

Helpfully for practitioners, the end of 2016 saw the Court of Appeal hand down decisions in three cases that resolve long running controversies. In Horton v Henry, first covered in the March 2015 Bulletin, the Court of Appeal gave judgment giving a large measure of protection to personal pensions, including SIPPS, belonging to bankrupts. In discarding one of two conflicting lines of authority, the court narrowed the circumstances in which those pensions would fall into a bankrupt’s estate.

In Avonwick Holdings Limited v Shlosberg, first covered in the October 2016 Bulletin, the Court of Appeal upheld the High Court’s conclusion that legal professional privilege was not property falling into the bankruptcy estate. A trustee, therefore, waive privilege attaching to the bankrupt’s documents in favour of creditors to permit the use of those documents in proceedings against the bankrupt. This judgment is essential reading for those lawyers jointly instructed by creditors and office-holders.

The Court of Appeal in Sands v Layne, first covered in the March 2015 Bulletin, finally resolved the long running dispute about the scope of section 375 of the Insolvency Act 1986, which gives the insolvency court the power to review, rescind or vary its orders, thereby settling a question debated in the authorities since 2013. It is now clear that a court can use the power whether it sits at first instance or as an appellate court.

There have also been a number of important decisions for administrators. In Re the Nortel Group, the High Court gave administrators guidance about when they could ask the court to bless their momentous decisions, in the same way as the court might bless the decision of a trustee. This judgment rewards review by all those office-holders contemplating taking important decisions in significant insolvencies.

In Re HEC EnterprisesLtd the High Court considered the circumstances in which administrators could rely on the principles in Re Berkeley Applegate. The decision is a stricter application of those principles than the recent decision of the Cayman Grand Court on the same subject in Re Caledonian Securities Limited (see the October 2016 Bulletin). No doubt the fact that the administrators acted contrary to the interests of those whose trust assets they were managing swayed the English courts against granting relief.

The end of 2016 and the start of 2017 have also seen several other important developments for practitioners involved in bankruptcies.

In Golstein v Bishop the High Court took an expansive view of the words “material irregularity” for the purpose of setting aside an IVA. In a decision that arguably pushes the boundaries of the law, the court set aside an IVA on the basis of a material irregularity which, it was accepted, would not have affected the outcome of the original vote. It remains to be seen whether this decision is reviewed at an appellate level and whether it encourages otherwise ambitious challenges to the validity of IVAs.

In Re Kiss Cards Ltd the High Court provided an invaluable exposition of the principles applicable to setting aside transactions at an undervalue where money is paid into joint bank accounts. It is now advisable for both account holders to be joined to such claims.

Finally in a narrow but practical judgment, the High Court in Re Mohammed Safier set out the circumstances in which trustees in bankruptcy must pay a fee to the Secretary of State for use of the Insolvency Service Account. In light of this decision, the relevant question in each case for insolvency practitioners will not be, ‘Was the account used at all?’ but, instead, ‘Were assets falling within the bankruptcy estate paid into the account?’.